Issues & Overview Butterflies And Group Goodbyes: Are Your ADEA Releases In RIFs Enforceable After Smith?

Friday, July 1, 2005 - 01:00

Michael Eric Ross and David Tetrick
King & Spalding LLP

The "butterfly effect" posits that small actions will have dramatically
broader consequences. In the prototypical example, a butterfly flaps its wings
in Asia and a hurricane forms in the Atlantic Ocean. So it might go with some
police officers in Mississippi seeking more pay and the enforceability of age
discrimination releases in connection with a group (two or more) termination of
employees.

In Smith v. City of Jackson (March 30, 2005), the Supreme Court
resolved a split among the federal circuits as to whether the ADEA permits
disparate impact claims. Unlike disparate treatment, which requires proof of
intentional discrimination, the disparate impact theory may impose liability for
facially neutral policies or practices that adversely impact a protected group,
even absent discriminatory intent. In Smith, the Court held that the ADEA
authorizes disparate impact claims, albeit to a more limited extent than under
Title VII of the Civil Rights Act of 1964.

Smith involved a pay plan that gave police officers with less than
five years seniority proportionately greater raises than officers with more
seniority, which included most of those in the protected age group of 40 or
older. Several of the older officers filed suit under the ADEA alleging both
disparate treatment and disparate impact discrimination with respect to the pay
plan. The Fifth Circuit affirmed the trial court's ruling that disparate impact
claims are unavailable under the ADEA. The Supreme Court disagreed. Relying
primarily on (i) the essentially identical prohibitory language in the ADEA and
Title VII and (ii) the ADEA's carve-out of "any action otherwise prohibited . .
. where the differential is based on a reasonable factor other than age" (the
"RFOA provision"), the Court reversed the Fifth Circuit's categorical rejection
of disparate impact liability under the ADEA.

Nevertheless, because of the RFOA provision and the Civil Rights Act of 1991,
which amended Title VII (but not the ADEA) to relax the demanding prima
facie showing of disparate impact mandated by its 1989 decision in
Wards Cove Packing Co. v. Atonio
, the Court held that disparate impact
exposure is narrower under the ADEA than under Title VII. In particular, the
Court found that Title VII's "business necessity" test, which asks whether there
are other ways to achieve the employer's goals that result in less adverse
impact, is not part of the RFOA's reasonableness inquiry. Thus, the Court
concluded that plaintiffs' disparate impact claim failed because (i) they did
not identify any specific test, requirement, or practice within the challenged
pay plan that had an adverse impact on older workers and (ii) the City's
explanation for the complained-of pay differential - raising starting salaries
of police officers to the regional average and making junior officers' salaries
competitive in the relevant market -"unquestionably" constituted a RFOA.

Smith is bad news for employers. By permitting disparate impact claims
under the ADEA, Smith virtually invites an increase in ADEA
administrative charges and litigation, at least in the short run. And while
plaintiffs pursuing ADEA disparate impact claims will have to overcome both
Wards Cove
and the RFOA provision, covered employers will now have to deal
with the attendant defense costs and the increased expense of including age in
the factors they consider when examining their policies and practices for a
potentially actionable adverse impact on any protected group of applicants or
employees.

Which gets us back to the butterfly effect. In Burlison v. McDonald's
Corp.
(May 6, 2005), the federal district court in Atlanta relied in part
on Smith to support its surprising interpretation of the information that
must be provided under the OWBPA to employees in any group termination to get a
valid waiver of their ADEA claims. In considering a nationwide workforce
restructuring, the court held that plaintiffs who were offered a severance
package in exchange for a release including ADEA claims, were entitled to know
the job titles and ages of all employees across the country who were likewise
terminated and offered a severance package, even though the "decisional unit"
for plaintiffs was limited to three regions. According to the court, the
possibility of disparate impact claims under the ADEA after Smith
signaled that "such national data could, even in the absence of intent on behalf
of the relevant decisionmaker, be relevant to the determination of the existence
of a valid claim of age discrimination."

If the court in Burlison is right in its post- Smith reading of
the OWBPA regulations, thousands of ADEA releases in RIFs are probably now
vulnerable to challenge as failing to provide the requisite information about
employees outside the "decisional unit" who were terminated as part of a wider
group termination program. In that event, the whooshing sound you hear is not a
butterfly flapping its wings, but employers (and their counsel) sucking in their
collective breath at this potentially staggering fallout from Smith .

Michael Eric Ross and David Tetrick are
partners in the Atlanta office of King & Spalding
LLP.